These reports, excerpted and edited by Barron’s, were issued recently by investment and research firms. The reports are a sampling of analysts’ thinking; they should not be considered the views or recommendations of Barron’s. Some of the reports’ issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed.
Dell Technologies DELL-NYSE
Outperform Price $67.76 on Sept. 16
by Evercore ISI
We think lower interest rates are an under-appreciated upside lever for Dell that can drive earnings per share and free cash flow higher. Dell currently has $54.5 billion of total debt, and we estimate that $15 billion to $16 billion of the debt is variable-rate. Given the 150-basis-point change in three-month Libor since Dell’s fiscal 2021 began, we think that lower rates could lead to $200 million in annual interest savings or 20-25 cents in annualized EPS benefit. Furthermore, in an upside scenario that assumes Dell is also able to refinance the fixed-rate portion of its debt, it can save $550 million-$820 million in annual interest, or 50-90 cents in EPS benefit. Net/net: We continue to hold a positive view on Dell, given potential for fundamental upside, driven by a macro recovery. We think deleveraging/lower interest rates could drive EPS higher despite a muted growth environment (raising price target to $75 to reflect EPS upside from lower interest). Lastly, we note that strategic options related to the company’s majority ownership of VMware could further unlock value in the stock.
Sirius XM Holdings
Buy Price $5.36 on Sept. 15
We are upgrading SiriusXM to Buy from Hold and installing a 2021 price target of $7. We feel strongly that yesterday’s 5% sell-off was unwarranted in the wake of the news that Jennifer Witz, current president of sales, marketing, and operations, will succeed long-standing CEO James Meyer when he retires at year-end. It is even plausible that the market was more spooked by the nearer-term departure of well-regarded CFO David Frear, who we believe might have been Meyer’s successor in any significantly earlier transition, with the SiriusXM board and controlling shareholder Liberty SiriusXM [part of
(ticker: LSXMA] instead deciding for the generational transition to Witz. (Frear’s replacement is Sean Sullivan, currently CFO of AMC Networks.) We have no concerns over SiriusXM’s financial information systems or reporting propriety and remain confident that it will remain the leader in North American audio entertainment.
Buy Price $747.79 on Sept. 11
by Edward Jones
We rate shares of Equinix a Buy. In our view, demand for Equinix’s data-center services will be driven by trends such as cloud computing, artificial intelligence, 5G, and autonomous driving. These long-term tailwinds will increase the need for more data collection and storage, and we think that Equinix–a market leader with diversification and scale advantages–has a strong growth path ahead of it. During the [second] quarter, 190 new customers were added, which we think strengthens the company’s ecosystem and increases the attractiveness of its services.
Buy Price $58.51 on Sept. 10
by BofA Securities
Aaron’s [a major player in the lease-to-buy market for appliances, furniture, and electronics, which also offers financing services] announced in late July its intention to split into two companies by year-end: its Progressive Leasing business (which we believe could command a higher valuation multiple, given its growth characteristics) and its Aaron’s Business (which could be valued more similarly to brick and mortar retailers with limited growth).
AAN shares trade at just 11 times our revised 2021 earnings estimate (about 8 times 2021 estimated enterprise value/Ebitda, or earnings before interest, taxes, depreciation, and amortization), which is a discount to both comparable financial-services providers (comps for Progressive Leasing) and brick and mortar retailers (comps for Aaron’s Business).
We raise our price objective to $77 (from $75) based on our raised ’21 estimates, and reiterate our Buy rating. We view Aaron’s as an underappreciated investment opportunity.
Hold Price $267.55 on Sept. 17
by Maxim Group
(MRNA) entered into a second three-year collaboration, announced yesterday morning, to develop lipid nanoparticles (LNPs) and mRNAs for delivering gene-editing therapies to treat cystic fibrosis in a deal worth more than $450 million, with $75 million paid upfront to Moderna.
The collaboration aims to treat the remaining about 10% (7,000-8,000) of patients that Vertex’s current therapies are unable to address; those that do not express a protein called CFTR. Vertex’s approved cystic fibrosis medicines enable better CFTR function. These medicines are on pace to generate $5.7 billion-$5.9 billion in 2020.
Vertex has development experience in gene-based therapies from its partnership with
(CRSP) and its acquisition of Exonics Therapeutics, while Moderna is an industry leader in mRNA-based therapies. As these programs are still early-stage, we do not factor potential revenue in our model.
Our focus remains on the cystic fibrosis commercial franchise, and we still expect continued domination in this space by Vertex. Our Hold rating, predicated on valuation, remains unchanged.
Buy Price $13.59 on Sept. 16 by B. Riley Securities
We return to IMAX after the China Film Distribution and Exhibition Association announced that maximum seating capacity restrictions for China movie theaters will be eased once again, ahead of the coming National Day holiday. We view this move as not only a positive attendance/box office tailwind for IMAX screens within China—a market that contains 46% of IMAX’s global screen base and accounted for 33% of its global box office in 2019—but potentially an early indicator of how reopenings could progress in the U.S. (where theaters are currently burdened with 50% capacity restrictions).
With IMAX screens experiencing noticeable box-office share gains in recent months as the exhibition industry has begun reopening around the world, we remain optimistic that consumers will gravitate toward premium movie-going experiences when they return to theaters and embrace the film slate increasingly tilted toward blockbuster movies. Target price: $21.
First Republic Bank
Neutral Price $108.38 on Sept. 17
by Piper Sandler
We are assuming coverage of First Republic with a Neutral rating and establishing 2020 and 2021 EPS estimates of $5.35 and $5.50, respectively.
Our 12-month price target is $115, which equates to 20.9 times our 2021 EPS estimate. This valuation represents a substantial premium to peers, which is supported by the company’s exceptional banking and wealth management franchise, desirable footprint, above-average growth outlook, strong management team, and healthy credit quality. We believe our price target fairly values the company, especially as we expect its credit performance to outperform peers’ in the current environment. However, with less than 10% potential price appreciation, we are assuming coverage with a Neutral rating.
Our forecast assumes mid-teens loan growth, gradual core margin compression, and increasing wealth-management fees, partly offset by higher expenses and continued elevated provisions, which curtail the pace of earnings growth.
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